Thirty years ago this month, former British prime minister Margaret Thatcher came to power. Although precipitated by local conditions, the Thatcher revolution, when paired with the policies of former US president Ronald Reagan, became an instantly recognizable global brand for a set of ideas that inspired policies to free markets from government interference.
Three decades later, the world is in a slump and many people attribute the global crisis to these very ideas. Indeed, even beyond the political left, the Anglo-American model of capitalism is deemed to have failed. It is held culpable for the near financial meltdown. But 30 years of hindsight enable us to judge which elements of the Thatcher revolution should be preserved and which should be amended in the light of today’s global economic downturn.
Most obviously in need of amendment is the view that minimally managed and regulated markets are both more stable and more dynamic than those subject to extensive government intervention. The Thatcherite assumption, in other words, was that government failure is far more menacing to prosperity than market failure.
This was always bad history. The record shows that the period 1950 to 1973, when government intervention in market economies was at its peacetime height, was uniquely successful economically, with no global recessions and faster rates of GDP growth — and growth of GDP per capita — than in any comparable period before or since.
One can argue that economic performance would have been even better with less government intervention. But perfect markets are no more available than perfect governments. All we have are comparisons between what happened at different times. What these comparisons show is that markets plus government have done better than markets minus government.
Nevertheless, by the 1970s the pre-Thatcher political economy was in crisis. The most notorious symptom of this was the emergence of “stagflation” — simultaneously rising inflation and unemployment. Something had gone wrong with the system of economic management bequeathed by John Maynard Keynes.
In addition, government spending was on the rise, labor unions were becoming more militant, policies to control pay kept breaking down and profit expectations were falling. It seemed to many as though government’s reach had come to exceed its grasp, and that either its grasp had to be strengthened or its reach had to be reduced. Thatcherism emerged as the most plausible alternative to state socialism.
Nigel Lawson was Thatcher’s second chancellor of the exchequer. Out of the government’s anti-inflationary efforts emerged the “Lawson doctrine,” first stated in0 1984 and broadly accepted by governments and central banks ever since.
“The conquest of inflation should ... be the objective of macroeconomic policy. And the creation of conditions conducive to growth and employment should be ... the objective of microeconomic policy,” Lawson said.
This proposition overturned the previous Keynesian orthodoxy that macroeconomic policy should aim at full employment, with the control of inflation left to wage policy. Yet, despite all the “supply side” reforms introduced by Thatcherite governments, unemployment has been much higher since 1980 than in the 1950s and 1960s — 7.4 percent on average in the UK, compared to 1.6 percent in the earlier decades.
What about inflation targeting? Here, too, the record since 1980 has been patchy, despite the huge deflationary pressure exerted by low-wage competition from Asia. Inflation in 1950 to 1973 and 1980 to 2007 was about the same — just over 3 percent — while inflation targeting has failed to prevent a succession of asset bubbles that have brought recessions in their wake.
Nor has Thatcherite policy succeeded in one of its chief aims — to reduce the share of government spending in national income. The most one can say is that it halted the rise for a time. Now public spending is on the increase again and record peacetime deficits of 10 percent or more of GDP stretch ahead for years.
In de-regulating financial markets worldwide, the Thatcher-Reagan revolution brought about the corruption of money, without improving on the previous growth of wealth — except for the very wealthy. The average world citizen would have been 20 percent richer had world GDP per capita grown at the same rate between 1980 and 2007 as it did between 1950 and 1973 — and this despite China’s high growth rates in the past 20 years. Furthermore, in unleashing the power of money, the Thatcherites, for all their moralizing, contributed to the moral decay of the West.
Against these formidable minuses are three pluses. The first is privatization. By returning most state-owned industries to private ownership, the Thatcher revolution killed off state socialism. The British privatization program’s greatest influence was in the former communist states, to which it gave the ideas and techniques needed to dismantle grossly inefficient command economies. This gain must be preserved in the face of the current clamor to “nationalize” banks.
Thatcherism’s second success was to weaken trade unions. Set up to protect the weak against the strong, labor unions had become, by the 1970s, enemies of economic progress, a massive force of social conservatism. It was right to encourage a new economy to grow outside these congealed structures.
Finally, Thatcherism put an end to the policy of fixing prices and wages by central diktat or by tripartite “bargains” between governments, employers and trade unions. These were the methods of fascism and communism, and they would, in the end, have destroyed not just economic, but political, liberty.
Political pendulums often swing too far. In rebuilding the shattered post-Thatcherite economy, we should be careful not to revive the failed policies of the past. I still find fruitful Keynes’s distinction between the agenda and the non-agenda of politics. As long as central government takes responsibility for maintaining a high and stable level of employment, Keynes thought, most of the rest of economic life can be left free of official interference. Building a proper division of responsibility between state and market from this insight is today’s main task.
Robert Skidelsky, a member of the British House of Lords, is professor emeritus of political economy at Warwick University and a board member of the Moscow School of Political Studies.
COPYRIGHT: PROJECT SYNDICATE
As strategic tensions escalate across the vast Indo-Pacific region, Taiwan has emerged as more than a potential flashpoint. It is the fulcrum upon which the credibility of the evolving American-led strategy of integrated deterrence now rests. How the US and regional powers like Japan respond to Taiwan’s defense, and how credible the deterrent against Chinese aggression proves to be, will profoundly shape the Indo-Pacific security architecture for years to come. A successful defense of Taiwan through strengthened deterrence in the Indo-Pacific would enhance the credibility of the US-led alliance system and underpin America’s global preeminence, while a failure of integrated deterrence would
The Executive Yuan recently revised a page of its Web site on ethnic groups in Taiwan, replacing the term “Han” (漢族) with “the rest of the population.” The page, which was updated on March 24, describes the composition of Taiwan’s registered households as indigenous (2.5 percent), foreign origin (1.2 percent) and the rest of the population (96.2 percent). The change was picked up by a social media user and amplified by local media, sparking heated discussion over the weekend. The pan-blue and pro-China camp called it a politically motivated desinicization attempt to obscure the Han Chinese ethnicity of most Taiwanese.
On Wednesday last week, the Rossiyskaya Gazeta published an article by Chinese President Xi Jinping (習近平) asserting the People’s Republic of China’s (PRC) territorial claim over Taiwan effective 1945, predicated upon instruments such as the 1943 Cairo Declaration and the 1945 Potsdam Proclamation. The article further contended that this de jure and de facto status was subsequently reaffirmed by UN General Assembly Resolution 2758 of 1971. The Ministry of Foreign Affairs promptly issued a statement categorically repudiating these assertions. In addition to the reasons put forward by the ministry, I believe that China’s assertions are open to questions in international
The Legislative Yuan passed an amendment on Friday last week to add four national holidays and make Workers’ Day a national holiday for all sectors — a move referred to as “four plus one.” The Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP), who used their combined legislative majority to push the bill through its third reading, claim the holidays were chosen based on their inherent significance and social relevance. However, in passing the amendment, they have stuck to the traditional mindset of taking a holiday just for the sake of it, failing to make good use of
RSS