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.
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