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Did Margaret Thatcher transform Britain's economy for better or worse? Did Margaret Thatcher transform Britain's economy for better or worse?
(6 months later)
Reversing Britain's long-term economic decline. That was the daunting task Margaret Thatcher set herself when she arrived in Downing Street in May 1979 at the end of a traumatic decade that had seen a three-day week, inflation topping 25%, a bailout from the International Monetary Fund and the winter of discontent.Reversing Britain's long-term economic decline. That was the daunting task Margaret Thatcher set herself when she arrived in Downing Street in May 1979 at the end of a traumatic decade that had seen a three-day week, inflation topping 25%, a bailout from the International Monetary Fund and the winter of discontent.
She gave it her best shot. The last remnants of the postwar consensus were swept away in the ensuing decade – a period that saw the crushing of the trade unions, the Big Bang in the City, council house sales, the privatisation of large chunks of industry, the encouragement of inward investment, tax cuts, attempts to roll back the state, a deep manufacturing recession, a boom in North Sea oil production, and support for the creation of a single market in Europe.She gave it her best shot. The last remnants of the postwar consensus were swept away in the ensuing decade – a period that saw the crushing of the trade unions, the Big Bang in the City, council house sales, the privatisation of large chunks of industry, the encouragement of inward investment, tax cuts, attempts to roll back the state, a deep manufacturing recession, a boom in North Sea oil production, and support for the creation of a single market in Europe.
As far as her supporters are concerned, this radical transformation worked. Britain ceased to be the sick man of Europe and entered the 1990s with its reputation enhanced. The economy had become more productive, more competitive and more profitable. Deep-seated and long overdue reforms of the 1980s paved the way for the long 16-year boom between 1992 and 2008.As far as her supporters are concerned, this radical transformation worked. Britain ceased to be the sick man of Europe and entered the 1990s with its reputation enhanced. The economy had become more productive, more competitive and more profitable. Deep-seated and long overdue reforms of the 1980s paved the way for the long 16-year boom between 1992 and 2008.
To her detractors, Thatcher is the prime minister who wiped out more than 15% of Britain's industrial base with her dogmatic monetarism, squandered the once-in-a-lifetime windfall of North Sea oil on unemployment pay and tax cuts, and made the UK the unbalanced, unequal country it is today.To her detractors, Thatcher is the prime minister who wiped out more than 15% of Britain's industrial base with her dogmatic monetarism, squandered the once-in-a-lifetime windfall of North Sea oil on unemployment pay and tax cuts, and made the UK the unbalanced, unequal country it is today.
The truth lies somewhere between these extremes. Thatcher came to power when the economy was approaching a moment of truth after three decades of poor performance relative to other western countries. Had Jim Callaghan won the 1979 election, he too would have faced the challenge of how to modernise an economy beset by high inflation, weak management and poor industrial relations.The truth lies somewhere between these extremes. Thatcher came to power when the economy was approaching a moment of truth after three decades of poor performance relative to other western countries. Had Jim Callaghan won the 1979 election, he too would have faced the challenge of how to modernise an economy beset by high inflation, weak management and poor industrial relations.
Indeed, many of the policy innovations associated with Thatcher had already been pioneered by her predecessor. Full employment had been ditched in 1976, while Labour had introduced monetary targets and cash limits for Whitehall departments while Denis Healey was at the Treasury.Indeed, many of the policy innovations associated with Thatcher had already been pioneered by her predecessor. Full employment had been ditched in 1976, while Labour had introduced monetary targets and cash limits for Whitehall departments while Denis Healey was at the Treasury.
Nor, contrary to myth, did Thatcherism emerge fully formed in May 1979. Privatisation did not feature in the Conservative election campaign, while the tougher approach to trade union reform had only really become evident since the winter of discontent, and even then was a gradual process.Nor, contrary to myth, did Thatcherism emerge fully formed in May 1979. Privatisation did not feature in the Conservative election campaign, while the tougher approach to trade union reform had only really become evident since the winter of discontent, and even then was a gradual process.
That said, by the mid-1980s it was clear that the Conservative government's economic policy was based on a handful of core principles. Firstly, control of inflation rather than the pursuit of full employment was the centrepiece of macro economic strategy. The government's job was to keep inflation low, not to boost growth through demand management.That said, by the mid-1980s it was clear that the Conservative government's economic policy was based on a handful of core principles. Firstly, control of inflation rather than the pursuit of full employment was the centrepiece of macro economic strategy. The government's job was to keep inflation low, not to boost growth through demand management.
Secondly, the balance of power in industrial relations was shifted decisively in favour of employers. Three separate pieces of legislation between 1980 and 1984 attacked the closed shop, toughened up the laws on picketing and imposed secret strike ballots. Symbolically, the key moment was the defeat of the miners after the year-long pit strike in March 1985.Secondly, the balance of power in industrial relations was shifted decisively in favour of employers. Three separate pieces of legislation between 1980 and 1984 attacked the closed shop, toughened up the laws on picketing and imposed secret strike ballots. Symbolically, the key moment was the defeat of the miners after the year-long pit strike in March 1985.
Thirdly, industrial policy was all but abandoned. The state retained control of some nationalised industries – the railways, for example – but BT, British Airways, British Steel, British Gas and the British Airports Authority were among the big companies sold off. Thatcher did not believe in "picking winners"; instead she preferred to rely on market forces to ensure the survival of the fittest. To the extent that there was an industrial strategy, it was to sell Britain as a destination for Japanese car companies and to shift the focus of the economy away from manufacturing towards financial services.Thirdly, industrial policy was all but abandoned. The state retained control of some nationalised industries – the railways, for example – but BT, British Airways, British Steel, British Gas and the British Airports Authority were among the big companies sold off. Thatcher did not believe in "picking winners"; instead she preferred to rely on market forces to ensure the survival of the fittest. To the extent that there was an industrial strategy, it was to sell Britain as a destination for Japanese car companies and to shift the focus of the economy away from manufacturing towards financial services.
Fourthly, policy was aimed at those who, according to the prime minister, wanted to get on in life. There were big tax cuts for those on the highest incomes, driven by the belief that this would encourage entrepreneurship. But there were also cuts for basic-rate taxpayers: the 1988 budget, for example, cut the top rate of tax from 60% to 40% and the standard rate from 27% to 25%. Council house sales and advertising campaigns that encouraged the public to buy shares in privatised companies were meant to broaden the appeal of capitalism.Fourthly, policy was aimed at those who, according to the prime minister, wanted to get on in life. There were big tax cuts for those on the highest incomes, driven by the belief that this would encourage entrepreneurship. But there were also cuts for basic-rate taxpayers: the 1988 budget, for example, cut the top rate of tax from 60% to 40% and the standard rate from 27% to 25%. Council house sales and advertising campaigns that encouraged the public to buy shares in privatised companies were meant to broaden the appeal of capitalism.
Narrowly judged, the Thatcher economic revolution was a success. Britain's relative decline came to an end, although that was more due to slowdowns in countries such as France and Germany than an acceleration in UK productivity growth. The number of days lost through strikes tumbled. Nissan's arrival in the north-east showed that Britain was no longer the west's industrial pariah.Narrowly judged, the Thatcher economic revolution was a success. Britain's relative decline came to an end, although that was more due to slowdowns in countries such as France and Germany than an acceleration in UK productivity growth. The number of days lost through strikes tumbled. Nissan's arrival in the north-east showed that Britain was no longer the west's industrial pariah.
On the other hand, growth has been depressed because weak trade unions can no longer ensure wage increases keep pace with inflation. The government's welfare bill has been swollen by tax credits and housing benefit caused by the labour market reforms and council house sales of the 1980s. Britain's record on innovation and investment have been extremely poor, while the hollowing out of manufacturing left the economy over-dependent on the de-regulated City. Oil helped Thatcher paper over the cracks, but Britain's age-old problem – finding a way to pay its way in the world – remains. The last time the UK ran a trade surplus was the year of the Falklands war.On the other hand, growth has been depressed because weak trade unions can no longer ensure wage increases keep pace with inflation. The government's welfare bill has been swollen by tax credits and housing benefit caused by the labour market reforms and council house sales of the 1980s. Britain's record on innovation and investment have been extremely poor, while the hollowing out of manufacturing left the economy over-dependent on the de-regulated City. Oil helped Thatcher paper over the cracks, but Britain's age-old problem – finding a way to pay its way in the world – remains. The last time the UK ran a trade surplus was the year of the Falklands war.
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