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
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry