On Monday the British Prime Minister, David Cameron claimed that Margaret Thatcher had “saved Britain” by the economic policy she adopted and stuck to, in such a stubborn manner, while other politicians and news pundits made similar claims.
So what was Thatcher’s contribution to economic policy in Britain and is there some clear definition of Thatcherism?
There is no doubt that major changes took place in the late 70’s and 80’s which significantly changed the British economy and had profound effects in income distribution, social coherence, manufacturing production and economic viability for the British economy and that Thatcher played a major role in this change.
So what exactly was that change, and will it be beneficial for Britain’s long term viability?
To understand this change we need to take a wee look at Britain’s economic history before that period.
Before the First World War Britain’s economy was based on an empire which functioned very much on the basis of Britain importing “cheap” raw materials from it’s “colonies” around the world and being a world class manufacturing centre supported by an effective banking structure and a powerful military and administrative structure. This ensured that when Britain strongly supported “classical economics” and defended “free trade” in international markets this happily fitted well with British trade.
All of this changed after the 1914-18 war; indeed it was a major cause of that war. In the period between the wars classical economic and free trade suffered a loss of credibility as a result of market fluctuations and massive unemployment in the great depression.
So by the time the Second World War started people were desperately seeking better, more effective economic models than the classical model which had failed. It was in this period that John Maynard Keynes developed his theories about Government control and regulation to intervene in the market to effect employment and production.
It is a sobering fact that after the first year of the Second World War Britain still had considerable unemployment among shipyard workers, while the Germans were working full blast and importing labour to build ships to challenge the British Navy.
Churchill, when he come to power changed that and employed Keynes as a Government economic advisor. This final rejection of classical economics and the changeover to Keynesian economic policy was not noticed in the middle of the war, but it cured unemployment and enabled us to build an economy which could ensure our part in the final defeat of Hitler.
The Attlee Government which took over at the end of the war continued to employ Keynes as an economic advisor and continued to follow a Keynesian policy. This Government was the most successful Government ever in Britain and left a valuable legacy for the Governments which followed in terms of economic policy, full employment, social benefits and “Public Assets” and their policy was so successful that the Tory Governments which followed behind were afraid to change this policy and continued to operate a Keynesian full employment strategy.
In the 1970’s the British economy was still maintaining relatively full employment but the level of investment had been very low so that manufacturing productivity and economic efficiency in general was falling sharply. Briton was confronted with an international market in which it was increasingly unable to effectively compete with other emerging economies. There was an economic crisis every year either a “balance of payments” problem or a “run on the pound” or inflation, or wage disputes. The media was calling Britain the “sick man of Europe”.
In this situation the right wing in the Labour Party supported a policy which would keep wages down in return for full employment. The wanted an “incomes policy” or a “social contract” which would see workers accept low wages in order to save the national economy. This policy which may have been well intended was fatally flawed because the problem was not high wages it was low investment, and low wages merely encourage low investment in a capitalist market.
If we need a date when the Labour leadership rejected Keynesian policies then perhaps it is Jim Callaghan’s speech to the 1976 Labour Party Conference where he told conference “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you, in all candour, that that option no longer exits.” That statement is a clear rejection of Labour’s Keynesian past.
This of course led to bitter internal fighting in the labour movement and eventually to the tragic “Winter of Discontent” where Callaghan tried to force an incomes policy on low-paid Government employees, much to the delight of Thatcher and the Tories.
So the rejection of Keynesian economics and the adoption of neo-liberalism or more accurately, neo-classical economics started in the final days of the Callaghan Government, but Thatcher embraced it from the beginning and she pursued this strategy with vigour and determination in the teeth of bitter opposition, creating mass unemployment and industrial devastation on a huge scale all over Britain but with most effect in the areas of relatively high industrialization.
This adoption of neo-classical economic theory with blind faith in “free market” solutions not only caused mass unemployment and a huge loss of manufacturing capacity, which were widely unpopular (Thatcher was the most unpopular PM ever according to the polls just prior to the Falklands war), but they would have led to a considerable fall in GNP, a balance of payments crisis and a run on the pound, if it had not been for substantial oil coming ashore from the north sea just at that time which miraculously boosted the GNP, supported the weak pound and helped the balance of payments.
This development in the economy, which had been set in train long before Thatcher, combined with the political boost she got from the Falklands war saved Thatcher from ignominious defeat at the next general election and turned it into substantial victory.
This convinced Thatcher that she was right and for most people if seemed as though she understood how to get the economic improvements which everyone claimed was required. So Thatcher went full-steam ahead and took on the miners in order to undermine the working class organisational base.
This she achieved, again with the strong support of Scottish oil and her reputation as a politician who knew how to deal with “economic” problems rose, as did the idea of Thatcherism. However although that reputation has survived and people still claim as Cameron did, that she saved Britain, what is Thatcherism?
Well as an economic theory it does not exist. Thatcher was ignorant in the economic field. She claimed to be a strong supporter of Adam Smith’s ideas, but it is obvious that she did not understand them. Karl Marx could have explained to her the great value of Smith’s work which he certainly appreciated.
Thatcherism in economic terms is simply a return to classical economics with all its failings and an emotional rejection of Keynesian ideas.
Thatcher’s destruction of industry and manufacturing in Britain was not replaced by heavy investment to re-new or up-date industry; on the contrary it left industry in Britain in permanent decline. It used public assets to boost private assets by state organised raiding of public assets for cheap sale which she called “privatisation” which was supposed to help the economy, not by economic theory but by blind belief. However it made a lot of people rich without adding anything to the real GNP.
In support of her obsession with free market ideology, she and Ronald Reagan cut controls and regulation of the Banking and financial systems in Britain and the USA which led directly to the international banking crisis in 2008.
The British economy today has only the shadow of the manufacturing base it had when she came to power and with her neo-classical policies being continued by the present Tory Government the economy is in decline or stagnation and living standards are falling. We have the fourth most unequal society in the world with “free market” operations everywhere but still low investment and high inflation on top of unemployment and the Government is blaming the poor for this mess. To top it all the economy is entirely dependent on the Banking and finance sector which has grown enormously and which we know is vulnerable and corrupt to the core.
Scottish oil is still a substantial support for this ailing economy, but is not going into investment but to hold up falling revenue.
That is Thatcher’s legacy for Britain. Britain now has no economic future worth consideration. Her legacy for Scotland however is much better, she, more than any other person, convinced the Scots that they needed to take control of their own destiny. They forced through some devolution, but not enough for most so they will have a chance next year to take complete control and organise their own affairs.
Thatcher herself, when asked what her legacy for Britain was, said it was “New Labour” and that was perhaps the wisest judgement or assessment she ever made.