The end of World War II left Britain with massive economic problems. In elections held immediately after the war, the Labour Party overwhelmingly defeated Churchill’s Conservative Party. It had promised far-reaching reforms, particularly in the area of social welfare—an appealing platform in a country with a tremendous shortage of consumer goods and housing. Clement Atlee (1883– 1967), the new prime minister, was a pragmatic reformer rather than the leftist revolutionary that Churchill had warned against during the election campaign. His Labour government proceeded to enact reforms that created a modern welfare state. The establishment of the British welfare state began with the nationalization of the Bank of England, the coal and steel industries, public transportation, and public utilities such as electricity and gas. In the area of social welfare, the new government enacted the National Insurance Act and the National Health Service Act, both in 1946. The insurance act established a comprehensive social security program and nationalized medical insurance, thereby enabling the state to subsidize the unemployed, the sick, and the aged. The health act created a system of socialized medicine that forced doctors and dentists to work with state hospitals, although private practices could be maintained. This measure was especially costly for the state, but within a few years, 90 percent of the medical profession was participating. The British welfare state became the model for most European countries after the war. The cost of building a welfare state at home forced the British to reduce expenses abroad. This meant disman- tling the British Empire and reducing military aid to such countries as Greece and Turkey, a decision that inspired the enunciation in Washington of the Truman Doctrine (see Chapter 7). It was not only a belief in the morality of self-determination but also economic necessity that brought an end to the British Empire. Continuing economic problems brought the Conservatives back into power from 1951 to 1964. Although they favored private enterprise, the Conservatives accepted the welfare state and even extended it, undertaking an ambitious construction program to improve British housing. Although the British economy had recovered from the war, it had done so at a slower rate than other European countries. This slow recovery masked a long-term economic decline caused by a variety of factors, including trade union demands for wages that rose faster than productivity and the unwillingness of factory owners to invest in modern industrial machinery and to adopt new methods. Underlying the immediate problems, however, was a deeper issue. As a result of World War II, Britain had lost much of its prewar revenue from abroad but was left with a burden of debt from its many international commitments. At the same time, with the rise of the United States and the Soviet Union, Britain’s ability to play the role of a world power declined substantially. Between 1964 and 1979, Conservatives and Labour alternated in power. Both parties faced seemingly intractable problems. Although separatist movements in Scotland and Wales were overcome, a dispute between Catholics and Protestants in Northern Ireland was marked by violence as the rebel Irish Republican Army (IRA) staged a series of dramatic terrorist acts in response to the suspension of Northern Ireland’s parliament in 1972 and the establishment of direct rule by London. The problem of Northern Ireland remained unresolved. Nor was either party able to deal with Britain’s ailing economy. Failure to modernize made British industry less and less competitive. Britain was also hampered by frequent labor strikes, many of them caused by conflicts between rival labor unions. In 1979, after five years of Labour government and worsening economic problems, the Conservatives returned to power under Margaret Thatcher (b. 1925), the first woman prime minister in British history. Thatcher pledged to lower taxes, reduce government bureaucracy, limit social welfare, restrict union power, and end inflation. The “Iron Lady,” as she was called, did break the power of the labor unions. Although she did not eliminate the basic components of the social welfare system, she did use austerity measures to control inflation. “Thatcherism,” as her economic policy was termed, im improved the British economic situation, but at a price. The south of England, for example, prospered, but the old industrial areas of the Midlands and north declined and were beset by high unemployment, poverty, and sporadic violence. Cutbacks in funding for education seriously undermined the quality of British schools, long regarded as among the world’s finest. In foreign policy, Thatcher took a hard-line approach against communism. She oversaw a large military buildup aimed at replacing older technology and reestablishing Britain as a world policeman. In 1982, when Argentina attempted to take control of the Falkland Islands (one of Britain’s few remaining colonial outposts, known to Argentines as the Malvinas) 300 miles off its coast, the British successfully rebuffed the Argentines, although at considerable economic cost and the loss of 255 lives. The Falklands War, however, did generate popular support for Thatcher, as many in Britain reveled in memories of the nation’s glorious imperial past.